In a slow real estate market, advertising the phrase “seller financing” or “owner will carry” may generate more buyer interest than a traditional offering, which could result in a quicker sale. The days of loose mortgage lending are gone, and creative seller financing is poised to make a comeback. Home sellers may be more willing to explore ways to attract buyers, rather than let their property languish on the market. Seller financing can provide several benefits to homeowners who need to get their homes sold, as well as a good opportunity for home buyers.
Financing can be a First Mortgage or a Second Mortgage:
A first mortgage lien can be offered by the seller if the property is owned free and clear, or if the seller has a small existing mortgage that will be paid off at the close of the transaction.
A second mortgage can be offered to help a buyer get a Doorstep reality first mortgage at 80% loan to value, or less, which makes it easier to qualify, and eliminates the need for mortgage insurance.
For homes with a higher sales price, seller financing could reduce the loan amount of the first mortgage to the conforming loan limit, which provides the buyer with a lower interest rate, and easier qualifying guidelines than a jumbo loan.
A second mortgage can also be used as a wrap-around the loan, where the seller maintains their existing first mortgage, and creates a new second mortgage, offering one payment to the buyer.
Regarding a wrap-around loan, which is also known as an all-inclusive trust deed, the buyer and seller should be aware that many loan documents have a due-on-sale clause that says the lender has the right to call the loan due if the property is transferred. Considering market conditions, lenders may not choose to exercise that option if the mortgage remains in good standing.
Both the Home Buyer and Home Seller can Benefit:
Seller financing allows the parties to negotiate the interest rate and the repayment schedule. As compensation for helping the buyer with financing, the seller could receive a higher-priced sales offer and a higher rate of interest than they would from other investments. Also, the mortgage note carried by the seller would have a cash value, which could be sold to another investor.
Constricted lending guidelines prevent some good borrowers from buying a home. Seller financing could provide an opportunity for more buyers and sellers to negotiate a mutually beneficial transaction. Buyers could get into a home when they otherwise may not qualify, and home sellers could receive a quick sale, at a fair price, with a good rate of return on investment.
